Annual Report 2002 the Yokohama Rubber Co., Ltd

Annual Report 2002 The Yokohama Rubber Co., Ltd. Year ended March 31, 2002 PROFILE

The Yokohama Rubber Co., Ltd. (Yokohama), is one of the world’s leading manufacturers of rubber products, including vehicle tires, other rubber products, and adhesive products. Since its establishment in 1917, the

Company has expanded its business on a global scale, marketing products based on advanced technologies that reflect existing and emerging customer needs in the fields of automobiles, civil engineering, construction, marine engineering, aircraft components, and sports products. The Company has earned a strong global reputation for these operations. By reinforcing its production bases in Japan, the United States, and Asia and its marketing and sales bases around the world,

Yokohama is strengthening its international operations to continue earning the trust and confidence of customers around the world.

CONTENTS

Financial Highlights 1

To Our Shareholders 2

Accelerating Globalization 4

Yokohama Group at a Glance 6

Review of Operations 8

Tire Group 8

MB Group 12

Innovative Research and Development 15

Environmental Protection 16

Financial Section 17

Network 38

Board of Directors and Corporate Auditors 40

Investor Information 41 Financial Highlights (FOR THE YEARS ENDED MARCH 31, 2002 AND 2001)

Thousands of Millions of Yen U.S. Dollars Percentage change 2002 2001 (2002/2001) 2002 Net Sales ¥399,824 ¥387,855 3.1% $3,000,555 Operating Income 22,701 19,845 14.4 170,363 Income before Income Taxes 16,076 7,052 120,644 Net Income 7,363 96 55,256

Change (2002-2001) Total Assets ¥437,771 ¥448,130 ¥(10,359) $3,285,334 Shareholders’ Equity 114,502 112,651 1,851 859,301

Yen U.S. Dollars

2002 2001 2002 Per Share: Net Income: Basic ¥ 21.49 ¥ 0.28 $ 0.16 Cash Dividends 6.00 — 0.05

Note: Throughout this report, U.S. dollar amounts have been translated from Japanese yen, solely for the convenience of readers, at the rate of ¥133.25 = US$1, the approximate exchange rate prevailing on March 31, 2002.

Sales by Region Operating Income and Net Income (Loss) per Share Operating Margin (Billions of Yen) (Billions of Yen, Percentage) (Yen)

5.7 5.1 21.49 4.9 415 401 400 392 388 3.9 22.7

2.8 19.8 19.0 9.44

15.8 2.55 11.7 0.28

(26.30)

1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002

Japan North America Operating Income Other Regions Operating Margin

Financial Highlights 1 TO OUR SHAREHOLDERS First Net Sales Increase in Four Years and Significant Expansion in Net Income The time has come again to present and discuss the performance of the Yokohama Rubber Co., Ltd., and its consolidated subsidiaries (the Yokohama Group) in fiscal 2002, ended March 31, 2002. On the global economic stage, it became clear from the second half of the year that growth in the U.S. economy was slowing, while European and Asian markets became noticeably sluggish near the close of the fiscal term. In Japan, consumer spending and private sector capital investment remained weak. These factors created a harsh market environment. Despite the difficulties faced during the year, Yokohama increased its net sales by 3.1% from the previous fiscal year, to ¥399.8 billion, the first advance in four years. Operating income jumped 14.4%, to ¥22.7 billion. Net income rocketed from ¥96 million, Yasuo Tominaga, President to ¥7.4 billion.

“Despite the difficulties faced Reorganizing Operations and Reinforcing Corporate during the year, Yokohama Vitality The primary factors behind our favorable results in increased its net sales by 3.1% fiscal 2002 were active marketing by the Tire Group from the previous fiscal year, to in Japan, rising exports, cost-cutting and other ¥399.8 billion, the first advance in rationalizations, and the yen’s relatively low value four years.” against major foreign currencies. We improved our operating structure and corporate foundations under the two-year Action 21 management reform program, implemented in April 1999, which also contributed significantly to our strong performance. Activities under Action 21 included restructuring our tire operations under four specific global regions and forming marketing and product supply structures closely linked to the needs of each region. In our Multiple Business (MB) Group, we reviewed our operations and allocated resources to high-priority areas. We revitalized our organization by, for example enhancing management efficiency while reducing interest-bearing debt and labor costs. Our higher

2 To Our Shareholders earnings in fiscal 2002 stemmed from earlier initiatives installation on the world’s leading models as part of that included amortizing retirement benefit obligations our efforts to strengthen the Yokohama brand. and also writing off the goodwill of Yokohama Tire The MB Group established a more clearly defined Corporation (YTC) in the United States. operating structure focused on the hoses, sealing materials, industrial materials, aircraft components, and

Growth, Production Innovations and Globalization golf products businesses. Based on this structure, we are Fiscal 2002 was a transitional period between the Action developing new technologies, entering new markets, 21 program and future management plans. We now and globalizing our activities. seek to achieve new levels of prosperity from the financial improvements achieved in the year under Providing World-Class Technologies and Services review. Three key concepts underline our objectives. Yokohama is formulating a long-term plan in They are “Growth,” “Production Innovations,” and consideration of possible changes in its operating “Globalization.” environment over the next decade. The basic aim is to Growth entails increasing sales by offering the build a strong international presence, providing world- products and services our clients demand. Production class technologies and services to people everywhere. innovations go beyond revolutionizing plant processes, We will reach that objective in the time allocated, also focusing on raising customer satisfaction in whatever happens to our operating environment. To everything from technology development and shorter succeed, we must develop technologies that are the first lead times to logistics improvement—thereby and best in the world. These technologies must be strengthening competitiveness. Globalization does not superior and provide services that are unrivalled for mean following in the footsteps of other Japanese speed and precision. By pursuing distinctive businesses companies with overseas operations. Our approach to in this fashion, we will increase sales and improve the global market is to optimize locations for profitability while reducing excess assets, thereby procurement, production, logistics, and sales. enhancing the Group’s capital efficiency. As we strive to meet our targets, I ask for the

Laying Diverse Foundations in the Tire and MB Groups ongoing understanding and encouragement of our The Yokohama Group has laid diverse foundations shareholders around the world. under the three key concepts to achieve continuing progress. June 2002 Yokohama and Continental AG of Germany concluded a business alliance, and in April 2002 established a joint venture company to support new-car tire marketing to Japanese automakers worldwide. We solidified plans to enter China’s high-potential market, where we are constructing a passenger car tire plant, scheduled to open in May 2003. In technology Yasuo Tominaga, President development, we improved our special silica-rubber compound, for which we hold global patents, to bolster our lineup of tires that help reduce fuel consumption. We also stepped up development of a car tire for

To Our Shareholders 3 Accelerating GL BAL

In fiscal 2002, the Yokohama Group Building New Tire Plant in China In 2001, Yokohama received approval from the Chinese government to establish a company in Hang- formulated and deployed various zhou, Zhejiang Province, to manufacture and sell radial tires for passenger cars. As a result, we opened plans to achieve long-term growth. Hangzhou Yokohama Tire Co., Ltd., in January 2002. This operation should have an annual production In addition to starting construction capacity of 750,000 radial tires by May 2003, rising to 1.5 million units by 2006 if demand permits. The new company’s plant will adopt a small-lot of a tire plant in China, we entered a production system, and operations will concentrate on high-performance tires. We plan to ensure that global alliance with Continental to quality matches that of tires we make in Japan, but with a lower investment than that required for large supply tires to Japanese automakers. facilities. The Yokohama brand enjoys high recognition in China, with the top position in the market for imported radial tires for passenger cars. Hangzhou Yokohama Tire will initially focus on the replacement tire market, but is also eying original equipment (OE) supplies to automakers.

4 Accelerating Globalization IZATION

Tieup with Continental Yokohama Hydex Enters Agreement with Italian In February 2002, we concluded an international alliance Hose Maker with Continental of Germany to realize a global product In December 2001, subsidiary Yokohama Hydex supply network. The first step in this agreement was in Company reached an agreement with Manuli April 2002, with the establishment of Yokohama Automotive International S.A. of Italy to develop Continental Tire Co., Ltd. This joint venture supports OE automobile hoses and metallic fittings under unified tire marketing to Japanese automakers, and is steadily specifications. Manuli Automotive International receiving tire development orders from its clients. In manufactures and markets automobile hoses and addition, we agreed to support Continental’s sales in metallic fittings for the European market, where it Japan and exchange technologies to further strengthen holds the top share. In beginning a partnership with the activities of both companies. Yokohama and this company, we aim to respond to the trend Continental are now discussing cooperation in North among automakers to globalize parts procurement. America, where they are considering such issues as uniform specifications, production exchanges, and technological and logistical cooperation.

Accelerating Globalization 5 YOKOHAMA GROUP AT A GLANCE

TIRE GROUP

286 284 280 273 271

71.1% 1998 1999 2000 2001 2002 (+1.3) Sales (Billions of Yen)

15.6

Fiscal 2002 Sales 12.3 11.5 11.5 Percentage of net sales (change from fiscal 2001)

5.2

1998 1999 2000 2001 2002 Operating Income (Billions of Yen)

Main Products Tires for passenger cars, trucks, buses, light trucks, mining and construction equipment, industrial vehicles and aircraft, tubes, and aluminum alloy wheels

Manufacturing and Sales Organization Company. In addition, GTY Tire Company, a joint Yokohama manufactures and markets tires in Japan venture with Continental and Toyo Tire & Rubber Co., through 175 sales subsidiaries, including Yokohama Tire Ltd., handles a portion of our U.S. manufacturing. In Tokyo Hanbai Co., Ltd. Overseas, our tires are made Europe, we maintain two sales subsidiaries and five and sold in America by YTC, and in Asia by Yokohama dealerships, including Yokohama Reifen GmbH in Tire Philippines, Inc., and Yokohama Tyre Vietnam Germany.

6 Yokohama Group at a Glance MB GROUP 129 121 119 117 116

28.9% 1998 1999 2000 2001 2002 (-1.3) Sales (Billions of Yen)

8.4 7.3 Fiscal 2002 Sales 6.8 Percentage of net sales (change from fiscal 2001) 5.5 4.4

1998 1999 2000 2001 2002 Operating Income (Billions of Yen)

Main Products Hoses, marine hoses, conveyor belts, sealants, adhesives, antiseismic rubber bearings for bridges and buildings, golf products, aircraft components, and other products

Manufacturing and Sales Organization YH America, Inc., engage in both manufacturing and In Japan, we manufacture industrial-use products sales. We make golf products that PRGR Co., Ltd., at Yokohama and Yokohama Hydex. Yokohamagomu sells in Japan. We also manufacture aircraft Multiple Business East Co., Ltd., Yokohama Hydex components in Japan for marketing through and seven other sales subsidiaries market these Yokohama Aerospace America, Inc. products. In America, SAS Rubber Company and

Yokohama Group at a Glance 7 REVIEW OF TIRE OPERATIONS

GROUPFiscal 2002 in Review Tire Group sales rose 5.0%, to ¥284.3 billion, on increased sales of tires, primarily in Japan, North America, and Europe, supported by a weak yen.

RESULTS IN JAPAN tire marketing, we promoted new products, expanded the range of tire sizes in our lineup, and continued a

Favorable Sales of Replacement Tires campaign under which we insure purchasers of our In Japan, Yokohama increased sales in unit and value studless tires to cover a significant portion of vehicle terms. damage from accidents caused by slipping on snowy Although automobile production in Japan slipped or icy roads. These and other activities increased sales for the first time in two years, we increased our share of studless tires. Our insurance-support program has of the OE market. However, unrelenting discounting been very popular, as no rivals offer similar promotions. pressure from manufacturers and an increased ratio of small cars in total automobile production led to a drop in OE tire sales in both unit and value terms. In the replacement tire market, we introduced products based on innovative technologies. We also reinforced our DNA series of environmentally friendly, low-fuel-consumption tires with the DNA map-RV and

DNA map-i for minivans and one-box cars. In studless

Yokohama’s DNA series radial tires help lower fuel consumption and provide excellent wet grip.

8 Review of Operations—Tire Group Successful new products and marketing activities boosted overall unit- and value-based sales of replacement tires.

Rationalization of Truck and Bus Tire Production During fiscal 2002, Yokohama centralized production of radial tires for trucks and buses at the Mie Plant after suspending related operations at the Hiratsuka The Salem Plant of YTC, located in Virginia, works to raise production efficiency Tire Plant. We aim to improve efficiency through such and enhance product quality. concentration. We decided to gradually halt all RESULTS IN production and sales of bias tires for trucks and NORTH AMERICA buses for the Japanese market, where demand has steadily declined in recent years. Progress in Improving Operations at YTC Yokohama’s North American operations center on production by YTC, especially of tires for passenger cars, trucks, and buses. YTC expanded sales of high-performance tires and steadily reduced production costs. This subsidiary thus pared its loss from US$79.8 million in 2000, to US$19.1 million in 2001. In continuing comprehensive reforms, YTC plans to break even in 2003. After reevaluating its product structure, in March 2002 YTC changed its sales mix to increase production levels for high-value-added and high-performance tires and reduce production of unprofitable models. This move raised the average per- unit price of its tires, contributing to enhanced profitability. YTC intends to launch high-performance tires for passenger cars and light trucks, further increasing its sales of high-value-added products. It also aims to add to its bottom line by lowering interest- The PARADA radial tire for passenger cars sparked a bearing debt and logistics and fixed costs. In this boom for classy replacement tires in America. environment, the company plans to decrease its loss to US$9.0 million in 2002.

Review of Operations—Tire Group 9 RESULTS IN To take advantage of business potential in the ASIA AND OCEANIA Asian region, in March 2002 we set up a new office in Bangkok, Thailand,REVIEW to function as an information OF center

Numerous High-Performance Tires Marketed for our regional activities in this region. OPERATIONS Yokohama’s activities in Asia center on sales of tires for passenger cars, trucks and buses, with production in Strong Performance by Yokohama Tire Philippines Japan and the Philippines covering much of demand. Yokohama Tire Philippines, a production base for TIREIn fiscal 2002, sales advanced in Taiwan, Singapore, passenger car tires, mainly exports to Europe, the and the Philippines, helping increase our tire sales in Middle East, and other Asian countries. It sells some the region. of its offerings locally. In fiscal 2002, this company Demand for the A539 high-performance tire, which expanded its sales channels to Europe, thereby we released regionally in fiscal 2001, propelled overall boosting exports. Domestic demand was also strong. sales. We plan to raise the ratio of high-performance We established a sales company in the Philippines in products in our offerings for Asian markets, and in the February 2001, thereby significantly raising sales of GROUPspring of 2002 introduced the AVS ES100 sports tire, replacement tires and OE tires to the local plants of which contributes to reduced fuel consumption and Japanese automakers. Anticipating further increases in excellent handling. In spring 2003, we plan to launch demand, we expanded capacity at Yokohama Tire tires that provide a highly comfortable, low-noise ride. Philippines to 5,900 tires daily. In January 2002, we opened Hangzhou Yokohama Tire, a joint venture for radial tire production and sales Record Sales in Australia in Zhejiang Province. That company is building a plant Yokohama’s sales in Australia rose significantly, owing that should have an annual production capacity of to favorable demand for A539 passenger car tires, as 750,000 tires by May 2003. To boost awareness of well as for new tires for trucks and buses. We timed the Yokohama name, we have mounted a publicity new product launches with promotional campaigns campaign, centered on large billboards in such major and other targeted marketing activities. metropolises as Shanghai and Beijing.

At the 2001 24 Hours of Le Mans, Siekel Motorsport’s Porsche 911GT3-RS captured the Grand Touring “LM” GT class title, marking the second year that cars with Yokohama tires won that class at Le Mans.

10 Review of Operations—Tire Group RESULTS IN EUROPE Introducing a More Comfortable Tire Based on AND OTHER REGIONS New Concept In the spring of 2002, we launched the AVS dB tire for

High-Performance Tires Lead the Way passenger cars. This model offers a highly comfortable to Increased Sales and quiet ride. In Europe, where the emphasis is on In Europe, we meet demand through exports from comprehensive performance, no other tires have Japan and the Philippines, as well as through sales emphasized comfort. Our new concept is pioneering subsidiaries and dealerships in Germany, Italy, the new customer niches, and we plan to sell 200,000 units United Kingdom, Austria, Switzerland, Sweden, and per year. In fiscal 2003, we plan to further expand sales Denmark. Regional sales center on tires for passenger in Europe. We will inaugurate full-scale marketing of cars, trucks, and buses. our AVS WINTER tire, launched in fiscal 2002, thus In fiscal 2002, we reinforced our product lineup, expanding the range of tire sizes in our lineup. We will emphasizing high-performance tires, and actively also commercialize new tires for vans, trucks, and promoted our products. Sales in Europe thus buses. skyrocketed. Demand was particularly strong for recently introduced products, such as our high- Sales Up in the Middle East performance AVS Sport and A539 tires. To strengthen Japanese automobiles remain popular in the Middle regional promotions, we aired television commercials East. Yokohama is fast becoming synonymous with on the Euro Sports channel, which is broadcast around excellent quality, as many new Japanese cars come Europe. We also supplied one-make tires to the F3 equipped with our tires. In fiscal 2002, sales were German Championship and implemented other plans strong for a new tire offering superb comfort, to raise awareness of the Yokohama brand. introduced in May 2001. This product helped us Major automakers selected Yokohama tires for their increase regional sales. new models. Aston Martin Lagonda Limited adopted our AVS Sport as the standard tire for its V12 Vanquish and the 19-inch optional tire for the 2002 DB7 Vantage.

Aston Martin Lagonda adopted the high-performance AVS Sport for installation on its V12 Vanquish model, with a 450-horsepower engine delivering a maximum speed of more than 300 kph.

Review of Operations—Tire Group 11 REVIEW OF MB OPERATIONS

GROUPFiscal 2002 in Review During the year, Yokohama advanced its sales of antiseismic rubber bearings for bridges, sealants for buildings, conveyor belts, and aircraft components. However, sluggish private- sector capital investment and consumer spending in Japan lowered sales of hoses and golf products. In this situation, sales of the MB Group declined 1.4%, to ¥115.6 billion.

Japanese market for building sealants. In addition, we are the No. 1 supplier of windshield sealants, which we market to automakers. In fiscal 2002, sales of sealants for buildings increased, but demand was down for our windshield sealants. We released several environmentally friendly products during the term. ECU-193, our elastic adhesive for flooring materials, combats sick house syndrome by slashing concentrations of volatile organic compounds in new homes. HOTMELT M-155, our sealant for multiple-layer glass, is a hotmelt formed from a single material. It eliminates the need SEALANTS AND ADHESIVES to create compound hotmelt mixes and therefore reduces industrial waste. We also developed “e-can,”

Yokohama markets sealants for buildings and homes, a recyclable polypropylene container for liquids that as well as industrial and automotive adhesives, under reduces waste volumes. We plan to steadily replace

its HAMATITE® brand name. We are the top in the tinplate cans with this container for our products.

12 Review of Operations—MB Group HOSES raising the ratio of chlorine-free products in our hoses lineup.

Yokohama holds about 40% of the domestic market for hoses used in construction equipment and machine CONVEYOR BELTS, MARINE tools. We also boast major shares of the markets for HOSES, AND FENDERS power-steering and air-conditioner hoses used in automobiles. In fiscal 2002, we commercialized the AX Sales of our conveyor belts, marine hoses, and fenders Hose, which is coated with ultra-high molecular weight increased in fiscal 2002, primarily in markets outside polyethylene. This product won top marks from users Japan. The weak yen contributed to this result, but for its abrasion-resistance and durability. On the other we also won large orders through new products and hand, production in Japan was off at construction aggressive marketing. machinery and machine tools manufacturers, thus cutting our sales of hydraulic hoses. In addition, falling prices and a decrease in the production volume of new automobiles in Japan brought down our sales of automotive hoses. Yokohama is steadily adopting materials with low environmental impact in its production of hoses. In the year under review, we made a full-scale shift to Sales of conveyor belts were strong overseas. chlorine-free rubber in our hydraulic hoses, greatly

Yokohama’s sealants for buildings were used in constructing the Nagoya Dome. Although the dome is sealed, the roof center lets in natural light through glass plating. With a capacity of more than 40,000, the dome hosts pro baseball games, concerts, and even imported automobile shows.

Review of Operations—MB Group 13 ANTISEISMIC RUBBER AIRCRAFT COMPONENTS BEARINGS AND JOINTS REVIEW OF Sales were robust for lavatory modules and drinking In May 2001, Yokohama began marketing its SHDR OPERATIONSwater tanks to The Boeing Company of the United ultrahigh-attenuation rubber bearings, which offer States, and we also increased sales of metallic more than 20% better attenuation performance than components for aircraft engines. As a result, category MBearlier models. These bearings significantly reduce the sales were up from the previous fiscal year. We effects of earthquake vibrations on bridge supports, received our first metallic engine component orders making enabling the design of more compact bridges for the growing market for regional jet aircraft, with with smaller supports, at lower cost. We shipped our deliveries commencing in May 2002. We will eventually first SHDR bearings to Japan’s Ministry of Land, supply Boeing with lavatory modules not only for Infrastructure and Transport in October 2001. New existing 757 models, but also for next-generation 737 products, combined with our winning of large jet aircraft. GROUPcontracts, such as for the Second Tomei Expressway project, significantly raised sales of antiseismic Yokohama Rubber bearings for bridges. (Thailand) posted favorable sales of windshield sealants to the local production facilities of Japanese automakers.

OVERSEAS PRODUCTION

Active marketing activities drove strong sales of antiseismic rubber bearings for bridges. In the United States, SAS Rubber delivers automotive We also achieved favorable sales for highway- hoses to the Ford Motor Company and also to expansion joints, which are fitted between girders to DaimlerChrysler via an assembly maker. In fiscal 2002, compensate for contraction and expansion caused by sales to the U.S. Big Three automakers and demand temperature changes and earthquakes. Orders soared for exports to Japan helped increase SAS Rubber’s for our Big Joints, designed with up to 30cm of sales of automotive hoses. Sales were down at elasticity for spaces surpassing 60cm. subsidiary YH America, which manufactures metallic fittings for hoses, assembles hoses, and produces GOLF PRODUCTS windshield sealants. The reduction reflected weak auto production in North America. Our Speed Titanium TR and Yokohama Rubber (Thailand) Co., Ltd., produces Speed Titanium TR-X drivers, windshield sealants and supplies hose assemblies. which can send balls incredible A recovery in unit-based automobile production in

distances, became hit products in Thailand and other Southeast Asian countries boosted fiscal 2002. However, generally weak sales of this company’s windshield sealants. In domestic demand for golf products led contrast, demand was flat for hydraulic hoses for to an overall decrease in category sales. construction machinery, causing a sales decline.

The Speed Titanium TR driver’s excellent performance stems from a highly repellant, ultrathin face that provides superb initial acceleration when the golf ball is hit. 14 INNOVATIVE RESEARCH AND DEVELOPMENT

The aims of Yokohama’s technological development are to enhance product performance, ensure low costs, conserve energy, and preserve the environment. We emphasize the development of new and composite materials. Following is a summary of significant achievements in fiscal 2002.

Advancements in Silica Surface-Treated method, it is impossible to track water flows, Carbon Black Technologies further Improve which change constantly with tire rotation. The Fuel Savings SPH approach allows analysis of water flows In 1998, Yokohama established a revolutionary within tire grooves and of the direction of water production technology to create Silica Surface- sprayed from the grooves during tire rotation. Treated Carbon Black. Using this chemical This enables more precise forecasts of water technique, we bond silica with carbon before displacement, thus simplifying prototype testing. compounding with rubber. In fiscal 2002, we took Yokohama will eventually be able to slash this production technology to new heights, development costs and lead times with the developing techniques to granularize silica and SPH methodology. carbon, and to create even stronger silica–carbon bonds during compounding. Owing to this new Functional Elastic Road Paver (FERP) method, the surface area of silica–carbon Effectively Counters Noise expands, thereby enhancing tire grip and fuel Yokohama applied used tires to develop the savings. The stronger bonding between silica Functional Elastic Road Paver, or FERP, which and carbon additionally improves abrasion provides an effective countermeasure to road resistance. In fiscal 2002, we used this technology noise. This material, formed by applying in our DNA map-RV and DNA map-i tires for urethane resin to rubber chips produced from minivans and one-box cars. used tires and borax, is distinctive for its high porosity and excellent elasticity. The numerous First Tire Manufacturer to Apply SPH Analysis gaps in the material absorb the sounds created in Tire Development by air compression when tires are in contact with The smoothed particle hydrodynamics (SPH) the road, and the elasticity of the rubber reduces analysis method, which is at the cutting edge of tire impact. Both of these qualities help reduce computational mechanics, was first developed in overall road noise. For example, conventional the 1970s as an astronomical tool to measure the low-noise materials lower noise by only around 3 movements of galaxies and nebulas. Yokohama decibels, but FERP cuts noise by more than 10 has become the world’s first tire manufacturer to decibels. The viability of the new material has apply this technique in product development, attracted great industry attention. We are testing specifically to create wet simulation technologies the durability and practicality of FERP with an eye that precisely analyze the water displacement of to commercialization. tires. With the conventional finite element

Innovative Research and Development 15 ENVIRONMENTAL PROTECTION

To deal with specific environmental issues, we established the Environmental Preservation Promotion Department in 1992 and the Environmental Preservation Promotion Committee, which is chaired by the president of the Company, in1993. These organizations supervise environmental preservation activities throughout the Yokohama Group.

“e-can” Sealant Container Helps Reduce Announcement of Environmental Accounting Industrial Waste Results Yokohama has developed “e-can”sealant Yokohama began disclosing environmental containers. Made of polypropylene, they accounting information in fiscal 2002. Our significantly reduce industrial waste. These costs from and investments in environmental containers are strong, yet easily crack from top to preservation measures in fiscal 2001 totaled ¥1.9 bottom, facilitating scrapping after usage and billion, and the economic effects of revenues reducing container volume to one-eighth that of from energy-saving and recycling activities tinplate cans. Our initial goal is to use “e-can” amounted to ¥522 million. Environmental technology to reduce industrial waste from preservation benefits (quantity of materials) product scrapping, but we also plan to establish included reductions of 1.5% in carbon dioxide a collection and recycling network for used emissions, 3% in water used, and 13% in “e-can” containers. industrial waste generation.

Sponsoring Electric Car Tour of Japan Rubber Waste Recycled into Tire Materials Yokohama was a primary sponsor of 2001 Toyota Central R&D Labs., Inc., Toyota Motor Challenge & Charge, a tour of Japan held by the Corporation, and Toyoda Gosei Co., Ltd., Japan Electric Vehicle Club. During the tour, an collaborated in the development of the shear electric vehicle traveled throughout Japan. flow stage reaction control technology for rubber Drivers stopped the car at people’s homes for recycling. We applied this advance to innovate recharges. Yokohama’s sponsorship included a materials-recycling technology that lets us supplying tires for the car. The tour was designed transform used rubber materials and treads from to raise public understanding of electric vehicles, truck and bus tires into high-quality rubber. We which do not emit carbon dioxide and run more aim to raise the volume of recycled rubber in new quietly than conventional cars, and promote tires, thereby conserving resources and reducing greater environmental awareness. The tour was production costs. from April to October 2001. The vehicle traveled 12,300 km and made 619 charging stops, which the cooperation of 1,171 people made possible.

16 Environmental Protection FINANCIAL SECTION

Financial Review 18

Five-Year Summary 21

Consolidated Balance Sheets 22

Consolidated Statements of Operations 24

Consolidated Statements of Shareholders‘ Equity 25

Consolidated Statements of Cash Flows 26

Notes to Consolidated Financial Statements 27

Independent Auditors’ Report 37

Financial Section 17 Financial Review

OPERATING RESULTS

Sales In fiscal 2002, ended March 31, 2002, consolidated net sales of the Yokohama Group increased 3.1%, to ¥399.8 billion, primarily owing to increased sales in Japan, America and Europe, as well as the effects of the weak yen.

Cost of Sales and Selling, General and Administrative Expenses Cost of sales increased 2.8%, to ¥267.7 billion, in line with the sales rise and the weak yen, which raised prices of raw materials. Increases in logistics costs and commissions also led to a 1.7% expansion in selling, general and administrative expenses, to ¥109.4 billion.

Operating Income The increase in net sales and improvements in the profitability of U.S. tire operations raised operating income 14.4%, to ¥22.7 billion. The operating margin increased 0.6 percentage point, to 5.7%.

Net Income In the absence of the one-time write-off of goodwill of YTC in fiscal 2001, the Yokohama Group achieved net income of ¥7.4 billion in fiscal 2002.

Sales by Group Operating Income by Group (Billions of Yen) (Billions of Yen)

415 401 400 392 388 22.7

19.8 19.0

15.8

11.7

1998 1999 2000 2001 2002 1998 1999 2000 2001 2002

Tire Group MB Group Tire Group MB Group

18 Financial Section SEGMENT INFORMATION

Business Groups Sales of the Tire Group expanded 5.0%, to ¥284.3 billion, owing to increased sales in Japan, North America, and Europe, and the weak yen. Such factors as a profitability improvement at YTC increased segment operating income 35.9%, to ¥15.6 billion. MB Group sales totaled ¥115.6 billion, a 1.4% decrease, mainly reflecting low sales of hoses and golf products. This Group’s operating income declined 12.7%, to ¥7.3 billion.

Regions Increased sales of tires contributed to a 1.7% rise in sales in Japan, to ¥322.9 billion. Operating income in Japan expanded 7.4%, to ¥22.1 billion. In North America, increased sales and improved profitability at YTC led to a 9.5% increase in regional sales, to ¥67.5 billion. Operating income in that market amounted to ¥544 million, following a ¥1.5 billion loss in fiscal 2001. Sales in other regions advanced 8.0%, to ¥9.4 billion, stemming from higher demand in Europe and Australia, with operating income expanding 11.4%, to ¥799 million.

Capital Expenditures and Depreciation Yokohama’s capital expenditures decreased 6.5%, to ¥16.9 billion, and depreciation declined 4.2%, to ¥19.2 billion. Capital expenditures included ¥12.7 billion in the Tire Group, primarily to reinforce production facilities for Yokohama’s Inch-Up tires, which feature expanded inner diameters for lower flat ratios and enhanced drivability. In the MB Group, ¥4.1 billion was used to enhance production facilities for hoses and aircraft components. The Company estimates that capital expenditures will be ¥23.9 billion in fiscal 2003, with depreciation amounting to ¥19.6 billion.

Net Income (Loss) Capital Expenditures and Depreciation (Billions of Yen) (Billions of Yen)

7.4

28 27

3.2 22 22 21 19 20 19 0.9 18 0.1 17

(9.0)

1998 1999 2000 2001 2002 1998 1999 2000 2001 2002

Capital Expenditures Depreciation

Financial Section 19 FINANCIAL POSITION AND CASH FLOWS

Assets Total assets of the Yokohama Group were ¥437.8 billion at March 31, 2002, down ¥10.4 billion from a year earlier. Current assets fell ¥2.8 billion, to ¥196.6 billion, owing mainly to decreases in cash and cash equivalents and time deposits. Total investments and other assets fell ¥7.0 billion, to ¥89.0 billion, reflecting a reduction in the market valuation of investment securities.

Liabilities and Shareholders’ Equity Total current and long-term liabilities at fiscal year-end were ¥321.6 billion, down ¥12.3 billion, mostly owing to a ¥12.2 billion reduction in interest-bearing debt. Total shareholders‘ equity expanded ¥1.9 billion, to ¥114.5 billion. Although the rise in net income generated retained earnings on a consolidated basis, unrealized gains on securities decreased.

Cash Flows Net cash provided by operating activities decreased ¥3.4 billion, to ¥22.8 billion, as the Group’s net income increase raised income taxes paid. Net cash used in investing activities dropped ¥2.8 billion, to ¥12.5 billion, mainly because of a reduction in purchases of property, plant and equipment. Net cash used in financing activities increased ¥5.9 billion, to ¥17.4 billion, primarily owing to a decrease in short-term bank loans and current maturities of long-term debt and a decrease in long-term debt. In this environment, cash and cash equivalents at end of year were ¥18.3 billion, down ¥6.7 billion.

FORECAST FOR FISCAL 2003

In fiscal 2003, ending March 31, 2003, the Yokohama Group forecasts that net sales will increase 1.3%, to ¥405.0 billion. Operating income should rise 1.3%, to ¥23.0 billion, with net income advancing 15.4%, to ¥8.5 billion.

Debt, Shareholders’ Equity and Net Cash Provided by Operating Activities Debt to Shareholders’ Equity and Percentage of Net Sales (Billions of Yen, Times) (Billions of Yen, Percentage)

8.2 3.8 6.8 3.3 3.3 3.0 5.6 5.7 2.8 32.1 334 334 3.5 325 329 322 26.2

22.6 22.8

14.6

113 115 102 99 86

1998 1999 2000 2001 2002 1998 1999 2000 2001 2002

Debt Shareholders’ Equity Net Cash Provided by Operating Activites Debt to Shareholders’ Equity Percentage of Net Sales

20 Financial Section Five-Year Summary FISCAL YEARS ENDED MARCH 31

Millions of Yen 2002 2001 2000 1999 1998

Net Sales ¥399,824 ¥387,855 ¥392,193 ¥401,183 ¥415,397 Operating Income 22,701 19,845 19,043 15,809 11,668 Income (Loss) before Income Taxes 16,076 7,052 (13,692 ) 7,731 5,685 Net Income (Loss) 7,363 96 (9,009 ) 3,233 873

Depreciation 19,247 20,083 21,922 21,141 21,566 Capital Expenditures 16,940 18,118 19,470 28,216 27,229 R&D Expenditures 12,298 11,827 11,626 13,300 13,800

Interest-Bearing Debt 179,098 191,289 198,931 215,245 209,132 Shareholders‘ Equity 114,502 112,651 85,951 99,125 102,081 Total Assets 437,771 448,130 416,702 425,247 437,023

Per Share (Yen): Net Income (Loss): Basic ¥ 21.49 ¥ 0.28 ¥ (26.30 ) ¥ 9.44 ¥ 2.55 Cash Dividends 6.00 — 6.00 6.00 8.00

Share Price (Yen): High ¥ 352 ¥ 312 ¥ 368 ¥ 351 ¥ 563 Low 228 200 197 255 290 Fiscal Year-End 296 235 287 314 319

Common Stock Issued 342,598,162 342,598,162 342,598,162 342,598,162 342,598,162

Number of Employees 13,130 13,362 13,764 12,107 12,325

Note: Since fiscal 2000, R&D expenditures have been based on new accounting standards.

Financial Section 21 Consolidated Balance Sheets The Yokohama Rubber Co., Ltd. and Consolidated Subsidiaries As of March 31, 2002 and 2001

Thousands of U.S. Dollars Millions of Yen (Note 1)

ASSETS 2002 2001 2002

Current Assets: Cash and cash equivalents (Note 9) ¥ 18,332 ¥ 25,046 $ 137,576 Time deposits 291 1,522 2,184 Trade receivables: Notes and accounts (Notes 4 and 6) 106,761 106,437 801,207 Allowance for doubtful receivables (2,784) (2,609) (20,893) Inventories (Note 3) 60,697 57,644 455,512 Deferred income taxes (Note 14) 6,473 5,955 48,578 Other current assets 6,790 5,350 50,957

Total current assets 196,560 199,345 1,475,121

Property, Plant and Equipment, at Cost (Notes 4 and 5): Land 30,972 30,684 232,435 Buildings and structures 112,716 110,763 845,899 Machinery and equipment 320,486 315,493 2,405,148 Construction in progress 5,855 3,123 43,940 470,029 460,063 3,527,422 Less accumulated depreciation (317,809) (307,255) (2,385,058)

Total property, plant and equipment, net 152,220 152,808 1,142,364

Investments and Other Assets: Investment securities (Notes 4 and 11) 60,945 72,109 457,372 Long-term loans receivable 2,013 2,097 15,107 Deferred income taxes (Note 14) 2,458 2,252 18,447 Other investments and other assets 25,261 21,003 189,576 Allowance for doubtful receivables (1,686) (1,484) (12,653)

Total investments and other assets 88,991 95,977 667,849

Total assets ¥437,771 ¥448,130 $3,285,334

See accompanying Notes to Consolidated Financial Statements.

22 Financial Section Thousands of U.S. Dollars Millions of Yen (Note 1)

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY 2002 2001 2002

Current Liabilities: Bank loans ¥114,936 ¥124,768 $ 862,559 Current maturities of long-term debt (Note 4) 15,852 18,231 118,964 Commercial paper 2,000 — 15,009 Trade notes and accounts payable 65,587 63,462 492,210 Accrued income taxes 4,749 6,579 35,640 Accrued expenses 20,397 19,445 153,073 Other current liabilities 10,707 10,137 80,353

Total current liabilities 234,228 242,622 1,757,808

Long-Term Liabilities: Long-term debt (Note 4) 46,310 48,290 347,542 Deferred income taxes (Note 14) 6,646 10,084 49,876 Reserve for pension and severance payments (Note 13) 26,339 27,433 197,666 Other long-term liabilities 8,112 5,496 60,878

Total long-term liabilities 87,407 91,303 655,962

Minority Interests 1,634 1,554 12,263

Contingent liabilities (Note 6)

Shareholders’ Equity: Common stock: Authorized: 480,000,000 shares Issued: 342,598,162 shares 38,909 38,909 292,000 Capital surplus 31,893 31,893 239,347 Retained earnings (Note 8) 29,983 23,010 225,013 Accumulated other comprehensive income Unrealized gains on securities 20,033 26,394 150,341 Foreign currency translation adjustments (6,309) (7,555) (47,347) 114,509 112,651 859,354 Treasury stock, at cost (7) (0) (53) Total shareholders’ equity 114,502 112,651 859,301

Total liabilities, minority interests and shareholders’ equity ¥437,771 ¥448,130 $3,285,334

Financial Section 23 Consolidated Statements of Operations The Yokohama Rubber Co., Ltd. and Consolidated Subsidiaries For the Years Ended March 31, 2002, 2001 and 2000

Thousands of U.S. Dollars Millions of Yen (Note 1) 2002 2001 2000 2002

Net sales ¥399,824 ¥387,855 ¥392,193 $3,000,555 Cost of sales 267,734 260,466 264,626 2,009,261 132,090 127,389 127,567 991,294

Selling, general and administrative expenses 109,389 107,544 108,524 820,931 Operating income 22,701 19,845 19,043 170,363 Other income (expenses) Interest and dividends income 797 832 915 5,981 Interest expense (4,831) (5,971) (5,444) (36,255) Lump-sum amortization of goodwill — (4,156) — — Amortization of prior service cost for pension plan — — (23,168) — Other—net (2,591) (3,498) (5,038) (19,445) (6,625) (12,793) (32,735) (49,719) Income (loss) before income taxes 16,076 7,052 (13,692) 120,644 Income taxes (Note 2): Current 8,266 8,520 4,655 62,034 Deferred 355 (1,579) (9,434) 2,664 8,621 6,941 (4,779) 64,698 Minority interests in net income of consolidated subsidiaries (92) (15) (96) (690)

Net income (loss) ¥ 7,363 ¥96 ¥ (9,009) $ 55,256

U.S. Dollars Per share amounts: Yen (Note 1) Net income (loss): Basic ¥ 21.49 ¥ 0.28 ¥ (26.30) $ 0.16 Net income: Diluted — — — — Cash dividends ¥6.00 ¥— ¥ 6.00 $ 0.05

See accompanying Notes to Consolidated Financial Statements.

24 Financial Section Consolidated Statements of Shareholders’ Equity The Yokohama Rubber Co., Ltd. and Consolidated Subsidiaries For the Years Ended March 31, 2002, 2001, 2000 and 1999

Millions of Yen Accumulated Other Shares of Common Capital Retained Comprehensive Treasury Common Stock Stock Surplus Earnings Income Stock Total

Balance at March 31, 1999 342,598,162 ¥38,909 ¥31,893 ¥35,182 ¥ (6,859) ¥(0) ¥ 99,125 Prior year’s adjustment for deferred taxes — — — 1,262 — — 1,262 Decrease in retained earnings due to addition of consolidated subsidiaries — — — (1,439) — — (1,439) Net loss — — — (9,009) — — (9,009) Cash dividends paid — — — (2,055) — — (2,055) Other comprehensive income Foreign currency translation adjustments — — — — (1,933) — (1,933) Balance at March 31, 2000 342,598,162 38,909 31,893 23,941 (8,792) (0) 85,951 Net income — — — 96 — — 96 Cash dividends paid — — — (1,027) — — (1,027) Other comprehensive income Unrealized gains on securities — — — — 26,394 — 26,394 Foreign currency translation adjustments — — — — 1,237 — 1,237 Balance at March 31, 2001 342,598,162 38,909 31,893 23,010 18,839 (0) 112,651 Increase in retained earnings due to addition of consolidated subsidiaries — — — 181 — — 181 Adjustment for excess of additional pension liability over unrecognized prior service cost — — — (571) — — (571) Net income — — — 7,363 — — 7,363 Treasury Stock — — — — — (7) (7) Other comprehensive income Unrealized losses on securities — — — — (6,361) — (6,361) Foreign currency translation adjustments — — — — 1,246 — 1,246 Balance at March 31, 2002 342,598,162 ¥38,909 ¥31,893 ¥29,983 ¥13,724 ¥(7) ¥114,502

Thousands of U.S. Dollars (Note 1) Accumulated Other Common Capital Retained Comprehensive Treasury Stock Surplus Earnings Income Stock Total

Balance at March 31, 2001 $292,000 $239,347 $172,683 $141,381 $0 $845,411 Increase in retained earnings due to addition of consolidated subsidiaries — — 1,358 — — 1,358 Adjustment for excess of additional pension liability over unrecognized prior service cost — — (4,285) — — (4,285) Net income — — 55,257 — — 55,257 Treasury Stock — — — — (53) (53) Other comprehensive income Unrealized losses on securities — — — (47,737) — (47,737) Foreign currency translation adjustment — — — 9,350 — 9,350 Balance at March 31, 2002 $292,000 $239,347 $225,013 $102,994 $(53) $859,301

See accompanying Notes to Consolidated Financial Statements.

Financial Section 25 Consolidated Statements of Cash Flows The Yokohama Rubber Co., Ltd. and Consolidated Subsidiaries For the Years Ended March 31, 2002, 2001 and 2000

Thousands of U.S. Dollars Millions of Yen (Note 1) 2002 2001 2000 2002

Operating Activities: Income (loss) before income taxes ¥ 16,076 ¥ 7,052 ¥(13,692) $ 120,644 Adjustments to reconcile income (loss) before income taxes to net cash provided by operating activities: Depreciation 19,247 20,083 21,922 144,442 Reserve for pension and severance payments (943) (2,145) (463) (7,076) Amortization of prior service cost for pension plan — — 23,168 — Lump-sum amortization of goodwill — 4,156 — — Other, net 4,492 6,686 7,318 33,711 Changes in operating assets and liabilities: Trade notes and accounts receivable 1,547 (5,338) 4,265 11,610 Inventories (306) 394 559 (2,296) Notes and accounts payable (90) 3,130 (101) (675) Other, net (2,957) 2,096 1,168 (22,191) Interest and dividends received 693 830 918 5,201 Interest paid (4,834) (5,903) (5,458) (36,278) Income taxes paid (10,100) (4,827) (3,484) (75,797) Net cash provided by operating activities 22,825 26,214 32,120 171,295 Investing Activities: Purchases of property, plant and equipment (14,884) (17,280) (20,243) (111,700) Purchases of marketable securities and investment securities (1,779) (492) (705) (13,351) Proceeds from sales of marketable securities, investment securities and properties 3,109 4,035 4,688 23,332 Other, net 1,085 (1,561) (264) 8,143 Net cash used in investing activities (12,469) (15,298) (16,524) (93,576) Financing Activities: Increase (decrease) in short-term bank loans and current maturities of long-term debt (14,269) 2,946 3,788 (107,084) Increase (decrease) in commercial paper 2,000 (8,000) (15,000) 15,009 Proceeds from long-term debt 13,447 5,277 3,576 100,916 Decrease in long-term debt (18,583) (10,661) (8,861) (139,460) Payment of cash dividends (6) (1,030) (2,054) (45) Net cash used in financing activities (17,411) (11,468) (18,551) (130,664) Effect of exchange rate change on cash and cash equivalents (110) 141 (438) (826) Decrease in cash and cash equivalents (7,165) (411) (3,393) (53,771) Cash and cash equivalents at beginning of year 25,046 25,617 26,463 187,962 Increase (decrease) in cash and cash equivalents due to addition of consolidated subsidiaries 451 (160) 2,547 3,385 Cash and cash equivalents at end of year (Note 9) ¥ 18,332 ¥ 25,046 ¥ 25,617 $ 137,576

See accompanying Notes to Consolidated Financial Statements.

26 Financial Section Notes to Consolidated Financial Statements The Yokohama Rubber Co., Ltd. and Consolidated Subsidiaries

1. Basis of Presenting Financial Statements The accompanying consolidated financial statements of The Yokohama Rubber Co.,Ltd. (the “Company”) have been prepared in accordance with accounting principles and practices generally accepted in Japan and have been compiled from the consolidated financial statements filed under the Securities and Exchange Law of Japan, which may differ in some material respects from accounting principles and practices generally accepted in countries and jurisdictions other than Japan. In preparing these statements, certain reclassifications and rearrangements have been made to the consolidated financial statements prepared domestically in order to present these statements in a form which is more familiar to readers outside Japan. In addition, the accompanying notes include additional information which is not required under accounting principles and practices generally accepted in Japan. The U.S. dollar amounts included herein are solely for the convenience of the reader and have been translated from the Japanese yen amounts at the rate of ¥133.25 = U.S.$1.00, the approximate exchange rate prevailing on March 31,2002.

2. Summary of Significant Accounting Policies (1) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its significant majority-owned domestic and foreign subsidiaries (together, the “Companies”). Investment in unconsolidated subsidiaries and associated companies (companies owned 20% to 50%) is accounted for by the equity method of accounting. All significant intercompany transactions and balances have been eliminated. The excess of the cost of the Companies’ investments in subsidiaries and associated companies over their equity in the net assets at the dates of acquisition was not material and has been fully written off as incurred.

(2) Foreign Currency Translation Foreign currency receivables and payables are translated at the year-end spot rates. The resulting exchange losses and gains are charged or credited to income. The assets and liabilities of the consolidated subsidiaries outside Japan are translated at the fiscal year- end rates of those companies, and the income and expense accounts of those companies are translated at the average rates of those companies. The resulting exchange adjustments are recorded in shareholders’ equity and minority interests.

(3) Cash Equivalents For purposes of the consolidated statements of cash flows, highly liquid investments with a maturity of three months or less are considered cash equivalents in 2002 and 2001.

(4) Marketable Securities and Investment Securities Securities designated as available-for-sale, whose fair values are readily determinable, are carried at fair value with unrealized gains or losses included as a component of shareholder’s equity, net of applicable taxes. Costs are determined by the moving average method. Securities whose fair values are not readily determinable are carried at cost. Costs are determined by the moving average method.

(5) Derivative Instruments Derivative instruments whose fair values are readily determinable, are carried at fair value.

(6) Inventories Inventories are stated at cost determined by the moving average method, except that the finished products of certain subsidiaries are valued by the most recent purchase price method.

(7) The Allowance for Doubtful Receivables The allowance for doubtful receivables is provided at an estimated amount of probable bad debts plus the amount which is based on the past credit loss experience.

Financial Section 27 (8) Depreciation Depreciation of property, plant and equipment is computed principally by the declining-balance method based on the estimated useful lives of the respective assets.

(9) Reserve for Severance Payments and Employee Benefit Plans Employees who terminate their service with the Companies are, under most circumstances, entitled to lump-sum severance payments determined by reference to their current basic rate of pay and length of service. The Company and certain consolidated subsidiaries have non-contributory pension plans for their termination caused by age limit. The Companies accounted for these liabilities based on the projected benefit obligations and plan assets at the balance sheet date. Unrecognized actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized primarily by the straight-line method over 10 years which are shorter than the average remaining service period of employees. The transition obligation of consolidated subsidiaries is amortized over 5 years. The transition obligation of the Company was written down by contributing the holding securities to the pension trust. In addition to providing pension and severance benefits, certain foreign subsidiaries sponsor several unfunded defined benefit postretirement plans which provide certain health care and life insurance benefits to eligible employees and, in 1993, adopted Statement of Financial Accounting Standard No.106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.”

(10) Income Taxes Income taxes in Japan comprise a corporation tax, enterprise tax and prefectural and municipal inhabitants’ taxes. Provision is made for deferred income taxes arising from temporary differences between assets or liabilities for financial and tax reporting purposes.

(11) Revenue Recognition Sales of products are recognized in the accounts upon shipments to customers.

(12) Research and Development Costs Research and development costs are charged to income as incurred.

(13) Earnings per Share The computation of basic net income (loss) per share is based on the weighted average number of shares outstanding during the period.

(14) Leases Finance leases, other than those lease agreements which stipulate the transfer of ownership of the leased property, are accounted for as operating leases.

3. Inventories Inventories at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002

Finished products ¥44,848 ¥43,637 $336,570 Work-in-process 6,676 5,621 50,101 Raw materials and supplies 9,173 8,386 68,841 ¥60,697 ¥57,644 $455,512

28 Financial Section 4. Long-Term Debt Long-term debt at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 2.65% straight bonds due 2004 ¥10,000 ¥10,000 $ 75,047 2.175% straight bonds due 2002 — 10,000 — 2.2% straight bonds due 2003 10,000 10,000 75,047 1.3425% straight bonds due 2007 10,000 — 75,047 Loans, principally from banks and insurance companies 32,162 36,521 241,365 62,162 66,521 466,506 Less current maturities 15,852 18,231 118,964 ¥46,310 ¥48,290 $347,542

Assets pledged to secure bank loans and long-term debt at March 31, 2002 and 2001 were as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 Investment securities ¥ 248 ¥295 $ 1,861 Notes receivable 1,326 2,869 9,951 Property, plant and equipment 83,057 90,724 623,317 ¥84,631 ¥93,888 $635,129

5. Depreciation Depreciation charges were as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2000 2002

Selling, general and administrative expenses ¥ 2,951 ¥ 2,784 ¥ 2,716 $ 22,146 Manufacturing costs ¥16,296 ¥17,299 ¥19,206 $122,296

6. Contingent Liabilities Contingent liabilities at March 31, 2002 and 2001 were as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002

Notes discounted and endorsed ¥2,052 ¥2,171 $15,400 Guarantees ¥1,669 ¥1,799 $12,525

7. Research and Development Expenses Research and development expenses charged to manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2002 and 2001 were ¥12,298 million ($92,295 thousand) and ¥11,827 million, respectively.

Financial Section 29 8. Retained Earnings and Dividends The amount of retained earnings available for dividends under the Commercial Code of Japan is based on the amount stated in the non-consolidated financial statements of the Company. Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends is applicable. In addition, semiannual interim dividends may be made by resolution of the Board of Directors, subject to the limitations imposed by the Commercial Code. On October 1, 2001, an amendment (the “Amendment”) to the Commercial Code of Japan became effective. The Amendment eliminated the stated par value of the Company’s outstanding shares, which resulted in all outstanding shares having no par value as of October 1, 2001. The Amendment also provided that all share issuances after September 30, 2001 will be of shares with no par value. Prior to the date on which the Amendment became effective, the Company’s shares had a par value of ¥50 per share. 9. Cash and Cash Equivalents Cash and cash equivalents at March 31, 2002 and 2001 consisted of the following: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002

Cash and time deposits ¥18,623 ¥26,288 $ 139,760 Time deposits with a maturity of over three months (291) (1,522) (2,184) Investments in short-term, highly liquid securities — 280 — Cash and cash equivalents ¥18,332 ¥25,046 $137,576

10. Leases An analysis of leased property under finance leases is as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 Acquisition costs ¥5,457 ¥6,710 $40,953 Accumulated depreciation 3,051 3,890 22,897 Net book value ¥2,406 ¥2,820 $18,056 The Companies had future lease payments under finance leases as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 Within one year ¥1,026 ¥1,191 $ 7,700 After one year 1,380 1,629 10,356 ¥2,406 ¥2,820 $18,056

Lease expenses under finance leases for the years ended March 31, 2002 and 2001 aggregated approximately ¥1,312 million ($9,846 thousand) and ¥1,453 million, respectively. Future rental payments under non-cancellable operating leases were as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 Within one year ¥2,024 ¥1,860 $15,189 After one year 6,663 7,941 50,004 ¥8,687 ¥9,801 $65,193

30 Financial Section 11. Securities Costs, carrying amounts and unrealized gains and losses pertaining to available-for-sale securities at March 31, 2002 and 2001 were as follows:

Millions of Yen Thousands of U.S. Dollars 20022001 2002

Carrying Unrealized Unrealized Carrying Unrealized Unrealized Carrying Unrealized Unrealized Cost amounts gains losses Cost amounts gains losses Cost amounts gains losses

Securities classified as: Available-for-sale: Stocks ¥21,898 ¥56,226 ¥36,644 ¥(2,316) ¥22,143 ¥67,342 ¥45,401 ¥(202) $164,338 $421,959 $275,002 $(17,381)

12. Derivative Instruments Fair value information of derivative instruments at March 31, 2002 and 2001 was as follows:

Millions of Yen Thousands of U.S. Dollars 20022001 2002 Contract Unrealized Contract Unrealized Contract Unrealized Forward exchange amount Fair value losses amount Fair value losses amount Fair value losses contracts: Deutsche mark — — — ¥2,182 ¥2,315 ¥(133) — — — EURO ¥1,908 ¥1,985 ¥ (77) — — — $14,319 $14,897 $ (578) U.S. dollar 1,169 1,181 (12) 1,198 1,264 (66) 8,773 8,863 (90) Others 947 1,000 (53) 772 803 (31) 7,107 7,505 (398) ¥4,024 ¥4,166 ¥(142) ¥4,152 ¥4,382 ¥(230) $30,199 $31,265 $(1,066)

Millions of Yen Thousands of U.S. Dollars 20022001 2002 Contract Unrealized Contract Unrealized Contract Unrealized amount Fair value gains (losses) amount Fair value gains (losses) amount Fair value gains (losses) Interest rate swap agreements ¥5,223 ¥(48) ¥(48) ¥7,434 ¥(66) ¥(66) $39,197 $(360) $(360) Interest rate option (cap) contracts written 2,144 4 4 2,144 8 8 16,090 30 30 ¥— ¥(44) ¥(44) ¥— ¥(58) ¥(58) $— $(330) $(330)

Financial Section 31 13. Pension and severance plans 1. The projected benefit obligations, plan assets and composition of amounts recognized in the consolidated balance sheets at March 31,2002 and 2001 were as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 Projected benefit obligations ¥(51,176) ¥(49,297) $(384,060) Fair value of plan assets 14,999 18,198 112,563 Funded status (36,177) (31,099) (271,497) Unrecognized transition obligation 1,538 2,051 11,542 Unrecognized actuarial losses 8,300 1,615 62,289 Net amount recognized ¥(26,339) ¥(27,433) $(197,666)

2. The components of net pension and severance costs for the years ended March 31, 2002 and 2001 were as follows:

Thousands of Millions of Yen U.S. Dollars 2002 2001 2002 Service cost ¥2,376 ¥ 2,495 $17,831 Interest cost 1,513 1,623 11,355 Expected return on plan assets (216) (279) (1,621) Amortization of transition obligation 514 8,991 3,857 Recognized actuarial losses 161 — 1,208

Net periodic benefit cost ¥4,348 ¥12,830 $32,630

3. Assumptions used as of March 31, 2002 and 2001 were as follows: 2002 2001 Discount rate 2.5% 3.5% Expected return rate on plan assets 4.0% 4.0%

32 Financial Section 14. Deferred Income Taxes 1. Significant components of the deferred income tax assets and liabilities at March 31,2002 and 2001 were as follows: Thousands of Millions of Yen U.S. Dollars 2002 2001 2002

Deferred tax assets: Liabilities for pension and severance payments ¥ 14,053 ¥ 14,167 $ 105,464 Net operating loss carryforwards 11,047 9,078 82,904 Unrealized profits 4,447 4,302 33,373 Accrued expenses 1,405 1,026 10,544 Other 2,898 2,838 21,749 Gross deferred tax assets 33,850 31,411 254,034 Less valuation allowance (11,238) (8,896) (84,338) Total deferred tax assets 22,612 22,515 169,696 Deferred tax liabilities: Unrealized gains on securities (14,271) (18,806) (107,099) Liabilities for pension and severance payments (3,558) (3,558) (26,702) Property, plant and equipment (2,135) (1,621) (16,023) Other (417) (472) (3,129) Total deferred tax liabilities (20,381) (24,457) (152,953)

Net deferred tax assets (liabilities) ¥ 2,231 ¥ (1,942) $ 16,743

2. A reconciliation of the statutory income tax rates to the effective income tax rates was as follows:

Years ended March 31 2002 2001 Statutory income tax rate in Japan 41.6 % 41.6 % Valuation allowance recognized on current losses of subsidiaries 7.9 53.1 Permanently nondeductible expenses 3.9 8.9 Permanently nontaxable income (1.2) (2.6) Other 1.4 (2.6) Effective income tax rate 53.6 % 98.4 %

Financial Section 33 15. Segment Information The business and geographical segment information and overseas sales for the Companies for the years ended March 31, 2002, 2001 and 2000 are outlined as follows:

Business Segments Millions of Yen

Multiple Eliminations TiresBusiness Total and Corporate Consolidated Year ended March 31, 2002

Sales to third parties ¥284,253 ¥115,571 ¥399,824 ¥—¥399,824 Intergroup sales and transfers 91 14,431 14,522 (14,522) — Total sales 284,344 130,002 414,346 (14,522) 399,824 Operating expenses 268,768 122,697 391,465 (14,342) 377,123 Operating income ¥ 15,576 ¥ 7,305 ¥ 22,881 ¥ (180) ¥ 22,701 Total assets at end of year ¥304,077 ¥142,213 ¥446,290 ¥ (8,519) ¥437,771 Depreciation ¥ 15,306 ¥ 3,822 ¥ 19,128 ¥ 119 ¥ 19,247 Capital expenditures ¥ 12,652 ¥ 4,073 ¥ 16,725 ¥ 215 ¥ 16,940

Year ended March 31, 2001

Sales to third parties ¥270,594 ¥117,261 ¥387,855 ¥— ¥387,855 Intergroup sales and transfers 134 7,619 7,753 (7,753) — Total sales 270,728 124,880 395,608 (7,753) 387,855 Operating expenses 259,264 116,512 375,776 (7,766) 368,010 Operating income ¥ 11,464 ¥ 8,368 ¥ 19,832 ¥13 ¥ 19,845 Total assets at end of year ¥302,635 ¥120,519 ¥423,154 ¥24,976 ¥448,130 Depreciation ¥ 16,020 ¥ 3,940 ¥ 19,960 ¥ 123 ¥ 20,083 Capital expenditures ¥ 14,867 ¥ 3,420 ¥ 18,287 ¥ (169) ¥ 18,118

Year ended March 31, 2000

Sales to third parties ¥273,088 ¥119,105 ¥392,193 ¥— ¥392,193 Intergroup sales and transfers 120 8,060 8,180 (8,180) — Total sales 273,208 127,165 400,373 (8,180) 392,193 Operating expenses 260,925 120,368 381,293 (8,143) 373,150 Operating income ¥ 12,283 ¥ 6,797 ¥ 19,080 ¥ (37) ¥ 19,043 Total assets at end of year ¥277,223 ¥103,919 ¥381,142 ¥35,560 ¥416,702 Depreciation ¥ 17,592 ¥ 4,124 ¥ 21,716 ¥ 206 ¥ 21,922 Capital expenditures ¥ 15,573 ¥ 3,660 ¥ 19,233 ¥ 237 ¥ 19,470

Thousands of U.S. Dollars

Multiple Eliminations TiresBusiness Total and Corporate Consolidated Year ended March 31, 2002

Sales to third parties $2,133,231 $ 867,324 $3,000,555 $—$3,000,555 Intergroup sales and transfers 683 108,300 108,983 (108,983) — Total sales 2,133,914 975,624 3,109,538 (108,983) 3,000,555 Operating expenses 2,017,021 920,803 2,937,824 (107,632) 2,830,192 Operating income $ 116,893 $ 54,821 $ 171,714 $ (1,351) $ 170,363 Total assets at end of year $2,282,003 $1,067,264 $3,349,267 $ (63,933) $3,285,334 Depreciation $ 114,866 $ 28,683 $ 143,549 $ 893 $ 144,442 Capital expenditures $ 94,949 $ 30,567 $ 125,516 $ 1,613 $ 127,129

34 Financial Section Geographical Areas Millions of Yen Eliminations JapanNorth America Other Total and Corporate Consolidated Year ended March 31, 2002

Sales to third parties ¥322,940 ¥67,534 ¥ 9,350 ¥399,824 ¥—¥399,824 Interarea sales and transfers 20,909 1,876 3,041 25,826 (25,826) — Total sales 343,849 69,410 12,391 425,650 (25,826) 399,824 Operating expenses 321,743 68,866 11,592 402,201 (25,078) 377,123 Operating income ¥ 22,106 ¥ 544 ¥ 799 ¥ 23,449 ¥ (748) ¥ 22,701 Total assets at end of year ¥363,764 ¥63,377 ¥14,167 ¥441,308 ¥ (3,537) ¥437,771

Year ended March 31, 2001

Sales to third parties ¥317,500 ¥61,698 ¥ 8,657 ¥ 387,855 ¥— ¥387,855 Interarea sales and transfers 19,407 213 2,603 22,223 (22,223) — Total sales 336,907 61,911 11,260 410,078 (22,223) 387,855 Operating expenses 316,333 63,391 10,543 390,267 (22,257) 368,010 Operating income (loss) ¥ 20,574 ¥ (1,480) ¥ 717 ¥ 19,811 ¥34 ¥ 19,845 Total assets at end of year ¥363,656 ¥58,558 ¥12,578 ¥ 434,792 ¥ 13,338 ¥448,130

Year ended March 31, 2000

Sales to third parties ¥316,695 ¥65,549 ¥ 9,949 ¥392,193 ¥— ¥392,193 Interarea sales and transfers 23,967 673 3,175 27,815 (27,815) — Total sales 340,662 66,222 13,124 420,008 (27,815) 392,193 Operating expenses 325,304 64,072 12,427 401,803 (28,653) 373,150 Operating income ¥ 15,358 ¥ 2,150 ¥ 697 ¥ 18,205 ¥ 838 ¥ 19,043 Total assets at end of year ¥358,850 ¥57,709 ¥12,611 ¥429,170 ¥(12,468) ¥416,702

Thousands of U.S. Dollars Eliminations Japan North America OtherTotal and Corporate Consolidated Year ended March 31, 2002 Sales to third parties $2,423,564 $506,822 $ 70,169 $3,000,555 $—$3,000,555 Interarea sales and transfers 156,915 14,079 22,822 193,816 (193,816) — Total sales 2,580,479 520,901 92,991 3,194,371 (193,816) 3,000,555 Operating expenses 2,414,582 516,818 86,994 3,018,394 (188,202) 2,830,192 Operating income $ 165,897 $ 4,083 $ 5,997 $ 175,977 $ (5,614) $ 170,363 Total assets at end of year $2,729,936 $475,624 $106,318 $3,311,878 $ (26,544) $3,285,334

Financial Section 35 Overseas Sales Millions of Yen North America Other Total

Year ended March 31, 2002

(A) Overseas sales ¥70,148 ¥39,459 ¥109,607 (B) Consolidated net sales ¥399,824 (C) (A)/(B) × 100 17.5% 9.9% 27.4%

Year ended March 31, 2001

(A) Overseas sales ¥61,727 ¥33,880 ¥ 95,607 (B) Consolidated net sales ¥387,855 (C) (A)/(B) × 100 15.9% 8.8% 24.7%

Year ended March 31, 2000

(A) Overseas sales ¥66,673 ¥36,228 ¥102,901 (B) Consolidated net sales ¥392,193 (C) (A)/(B) × 100 17.0% 9.2% 26.2%

Thousands of U.S. Dollars North America Other Total

Year ended March 31, 2002

(A) Overseas sales $526,439 $296,128 $ 822,567 (B) Consolidated Net sales $3,000,555 (C) (A)/(B) × 100 17.5% 9.9% 27.4%

36 Financial Section Independent Auditors’ Report

Certified Public Accountants Phone: 03-3503-1100 Hibiya Kokusai Bldg. Fax: 03-3503-1197 2-2-3, Uchisaiwai-cho Chiyoda-ku, Tokyo 100-0011 C.P.O. Box 1196, Tokyo 100-8641

The Board of Directors and Shareholders The Yokohama Rubber Co., Ltd.

We have audited the consolidated balance sheets of The Yokohama Rubber Co., Ltd. and consolidated subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2002, expressed in Japanese yen. Our audits were made in accordance with auditing standards, procedures and practices generally accepted and applied in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements referred to above, expressed in Japanese yen, present fairly the financial position of The Yokohama Rubber Co., Ltd. and consolidated subsidiaries at March 31, 2002 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2002, in conformity with accounting principles and practices generally accepted in Japan applied on a consistent basis.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2002 are presented solely for convenience. Our audits also included the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

June 27, 2002

See Note 1 to the consolidated financial statements, which explains the basis of preparing the consolidated financial statements of The Yokohama Rubber Co., Ltd. under Japanese accounting principles and practices.

Financial Section 37 Network

Yokohama Scandinavia AB Yokohama Aerospace America, Inc. Yokohama Danmark A/S Yokohama Tire (Canada) Inc. Yokohama Austria GmbH

Yokohama Reifen GmbH Hangzhou Yokohama Tire Co., Ltd. Düsseldorf Europe Head Office

Yokohama HPT Ltd.

SAS Rubber Company

Yokohama Corporation of North America Yokohama Continental Tire Co., Ltd. GTY Tire Company YH America, Inc. Yokohama Tire Taiwan Co., Ltd. SC Kingflex Corporation Panama Office Yokohama Tire Philippines, Inc.

Yokohama Corporation of America Yokohama Tire Corporation

Yokohama Tyre Australia Pty. Ltd.

Dubai Office

Yokohama (Suisse) SA Riyadh Office Yokohama Tyre Vietnam Company Yokohama Italia SPA Jeddah Office Singapore Office

Yokohama Rubber (Thailand) Co., Ltd.

Bangkok Office

38 Network OVERSEAS SUBSIDIARIES AND AFFILIATES Yokohama Austria GmbH Yokohama Tire Corporation Sales of tires and related products Production and sales of tires and related products Yokohama Danmark A/S Yokohama Tire (Canada) Inc. Sales of tires and related products Sales of tires and related products Yokohama Tire Taiwan Co., Ltd. Hangzhou Yokohama Tire Co., Ltd. Sales of tires and related products Production and sales of tires and related products Yokohama Continental Tire Co., Ltd. Yokohama Tire Philippines, Inc. Marketing support for tires and related products Production and sales of tires and related products Yokohama Corporation of America Yokohama Tyre Vietnam Company Equity participation in GTY Tire; sales of tires Production and sales of tires and related products Yokohama Corporation of North America GTY Tire Company Holding company for shares of YTC and other Production and sales of tires and related products companies

Yokohama Tyre Australia Pty. Ltd. Yokohama Rubber (Thailand) Co., Ltd. Sales of tires and related products Production and sales of windshield sealants and hoses

Yokohama HPT Ltd. YH America, Inc. Sales of tires and related products Production and sales of windshield sealants and hoses

Yokohama Italia SPA SAS Rubber Company Sales of tires and related products Production and sales of hoses and industrial-use rubber

Yokohama (Suisse) SA SC Kingflex Corporation Sales of tires and related products Production and sales of hoses

Yokohama Scandinavia AB Yokohama Aerospace America, Inc. Sales of tires and related products Sales of aircraft components

Yokohama Reifen GmbH Sales of tires and related products

OVERSEAS REPRESENTATIVE OFFICES Düsseldorf Europe Head Office Jeddah Office Riyadh Office Dubai Office Panama Office Singapore Office Bangkok Office

Network 39 Board of Directors and Corporate Auditors (ASOFJUNE 27, 2002)

P RESIDENT Yasuo Tominaga

E XECUTIVE D IRECTORS Hisao Suzuki

Yoshiro Naitoh

Keimei Kiyoura

M ANAGING D IRECTORS Kohji Ikawa

Seiji Miyashita

Kazuo Okamoto

Takashi Yamashita

Tadanobu Nagumo

Keigo Ueda

Takashi Sugimoto

D IRECTORS Yuzo Kikuchi

Tetsuya Mizoguchi

Toshihiko Shiraki

Takasuke Sato

Masamichi Danjo

Tatsunari Kojima

Akihisa Takayama

Michio Yuge

C ORPORATE A UDITORS Masaaki Kushida

Seiichi Suzuki

Junnosuke Furukawa

Yuzuru Fujita

40 Board of Directors and Corporate Auditors Investor Information (ASOFMARCH 31, 2002)

COMPANY NAME: The Yokohama Rubber Co., Ltd.

ESTABLISHED: October 13, 1917

PAID-IN CAPITAL: ¥38,909 million

HEAD OFFICE: 36-11, Shimbashi 5-chome, Minato-ku Tokyo 105-8685, Japan

PRODUCTION FACILITIES: Hiratsuka Factory and Mie, Mishima, Shinshiro, Ibaraki and Onomichi plants

WWW ADDRESS: http://www.yrc.co.jp/

AUTHORIZED NUMBER OF SHARES: 480,000,000

ISSUED NUMBER OF SHARES: 342,598,162 (unchanged from fiscal 2001 year-end)

NUMBER OF SHAREHOLDERS: 21,447 (down 2,891 from fiscal 2001 year-end)

AVERAGE SHARES PER SHAREHOLDER: 15,974

SETTLEMENT DATE: March 31

GENERAL MEETING OF SHAREHOLDERS: June

TRANSFER AGENT: The Chuo Mitsui Trust and Banking Company, Limited 33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

DATE OF RECORD: March 31

STOCK EXCHANGE LISTINGS: Tokyo, Osaka, Nagoya

Investor Information 41